Will they take his life insurance?

Husbands bankruptcy not discharged, he will have a financial penalty. This is presently being evaluated by a judge. He is 63 with some medical difficulties. As his spouse, if he dies before it is all paid off, will they take his life insurance? Secondly am I responsible to pay it off?

Posted from: Quebec

One Response to “Will they take his life insurance?”

Doug Stuive, CA | Trustee | CIRP said...

Once the matter is settled by the bankruptcy Court it sounds like your husband will be issued a Conditional Discharge. This means that your husband will remain undischarged until he meets the terms that the Registrar in Bankruptcy set by Court Order, including any payment requirements. If your spouse should die before he completes the terms of his conditional Order he will remain an undischarged bankrupt. As an undischarged bankrupt the Trustee would be entitled to any insurance proceeds where your husband is listed as the beneficiary or his estate is listed as beneficiary. If you are the listed beneficiary of your husband’s life insurance policy then the Trustee would not be able to access those funds upon his death. As a spouse you are a protected class beneficiary and the Trustee would not be able to take away your insurance proceeds. This protection will also ensure that the funds from the policy do not form part of your husbands estate upon his death.

If a person dies while in bankruptcy the creditors have the right to collect on their debts from any proceeds from your husband’s estate upon his death. With bankruptcy in place it is unlikely that his estate would have any funds that would be available to creditors upon his death. However, if your husbands estate has any value it may be in your best interest to pay out your husband’s conditional order in order to obtain his discharge from bankruptcy. Once he is discharged, the creditors would no longer have the right to collect on their debts and would have no access to any funds that form part of your husband’s death estate. You are not legally obligated to pay out the conditional order but again, depending on whether your husband’s estate has any funds available you may consider doing so to protect the assets from his creditors.